Question

“The New Zealand Government enjoys a better economic condition than the US in dealing with the recent COVID crisis, at least in the short run. Therefore, expansionary fiscal and monetary policies would likely to have an easier time lifting the New Zealand economy out of the recession than the US.”

Provide reasons in words to support or to oppose the above opinion. State your assumptions behind those reasons clearly. Then substantiate your argument with those assumptions using the IS-LM-AD model.

Answer 1

The New Zealand economy enjoys lower growth rate in Covid19 cases, lower fatalities rate and higher recovery rate which leads to better control of pandemic coupled with lockdowns and measures to curb pandemic which has all led to very low rise in cases and thus have become manageable. This leads to lower unemployment, higher disposable incomes which boosts consumption and aggregate demand. Also expansionary fiscal and monetary policy stimulus has helped revive businesses and thus economy recivers faster from recession as compared to America which has highest active cases and unemployment rate soaring higher.